TSLA Market Action: 2018 Investor Roundtable

[generalenthu]

Anything new there? Not a subscriber...

Yes, me neither. What were the terms offered by SEC here.

The Wall Street Journal on Twitter

 

[TNEVol]

I would only break even or make a little but I would support taking the company private. The comparison with Spacex is enough to convince me that public companies in the US cannot be long term solutions to our problems.

 

[theschnell]

Fighting means years of just as bad headlines, instead of weeks, though.

It will lose its strength pretty quickly, like all the other FUD. Not that they won't keep pushing it, but fairly quickly people will stop caring.

 

[EVNow]

Scanning through the tweets I see little support for EM. The support comes mainly from the west coast tech/VC crowd, as you'd expect.

Not seen a single "political backlash" tweet.

Looks like the timing had to do with EM's lawyers rejecting settlement. It makes sense that SEC wanted to close the case quickly and settle. But the terms may have been too onerous for EM to agree to. The willingness to quickly settle also negates all the conspiracy theories (fossil fuel interests etc).

 

[bdy0627]

When I first heard about the tweet, my own confirmation bias led me to believe that Elon plays 4 dimensional chess while everyone else is playing checkers and he has this all figured out with some whacked out innovative financial engineering.

When I soon learned that top notch Wachtell, Latham and Munger Tolles attorneys were involved, and Saudi Fund and Goldman and Silver lake were on the funding side, my belief was further confirmed.

That was all wrong.

Some innovators, like Steve Jobs and Elon Musk and Branson (and sorry, Trump is an orange version of this too) -- these people are less constrained by normal ways of doing things and can be great leaders when they lead the teams around them to do something that doesn't seem possible to mere mortals. They often do this by distorting the reality around them -- Ignoring the normal barriers to what they want to do. They do not discount risks, or costs and low probabilities of success and not accounting for the effort and time it will take to achieve what they want.

EM tried that in this case and it didn't work. In other cases it does work: just like he said, "reusable rockets let's do it", "EV cars faster than a McClaren, let's do it". But recall he also said "swappable batteries", "x-country drive on FSD" and bunch of other things that didnt work (yet). But that's ok for engineering and product technology. You can't have success with 3 things unless you try 10 or more. So failure often breeds success.

I suspect the tweet and the funding was another attempt to try something out and see if it works. And let's really motivate people to make it happen if it can at all happen by actually acting as if it is already under way. That doesn't work well with securities laws.

A 10b-5 violation requires scienter aka intent, which can be satisfied with recklessness. By being sloppy with descriptions of a potential transaction, and describing the transaction in terms that could be reasonably construed to indicate more certainty than in fact existed at the time, he was not being accurate. The real issue is whether the sloppiness and imprecision crossed the line into recklessness and satisfied the scienter/intent element of 10b5 fraud.

This is a tough issue. You might wonder, why is this case in NY when Tesla, and most of the witnesses, are in California.

The answer is that the Ninth Circuit has higher standards for recklessness, and here the SEC was seeking the 2nd circuits lower standards. See this summary of the law if you are interested . https://www.wsgr.com/PDFSearch/pleading_of_scienter.pdf

This is not a slam dunk case, but it is not a BS case. And by choosing NY, the SEC has a slightly lower threshold to prove scienter.

But we need to have more facts about what EM intended, and how much care he took in aligning his statements to reality. That entrepreneurial spirit that serves him well to push the envelope of engineering and product development did not serve him well here.

Likely and best outcome? A fast settlement with a fine that will hurt (at least tens of millions), but leaving him as an officer and director.

Other possible outcomes:

A settlement with a fine and agreeing to turn over CEO role to someone else.

A trial (very unlikely) that I think would lean a little bit in EM's favor if he has (as I hope he does) some real helpful facts to show that the reality of the prospects of transaction matched up with the descriptions in the tweets. But all trials are a roll of the dice.

Also possible that DOJ will have a criminal complaint against Musk, and possible that the SEC will also have a complaint against the company because of the involvement of the company blog and the IR dept. It's a mess.

It's also a totally unforced stupid error.

watch out for your own confirmation bias -- mine certainly led me astray back on Aug 7.

Great info. Thank you. What would be the basis for a criminal complaint against Elon from the DOJ? That would involve a much higher level of proof no doubt. There does not appear to have been any financial benefit to Elon from this. What angle would they be taking?

 

[oneday]

Interesting timing by SEC

I wonder if the DOJ indictment will come days before the q3 letter. Honestly won’t be surprised.

 

[azaz]

why did Musk not settle? this seems so dumb

 

[Xpert]

I didn't read the entirety, but what I did read suggested the SEC hasn't interviewed the Saudis. Obviously, they wanted to pursue this litigation quickly and didn't have time or the authority to compel the Saudis to answer questions. The statements in the lawsuit continually state "according to Musk."

So they didnt do enough due diligence and just threw it out in a hurry then? Very interesting.

 

[agloutney]

"First they ignore you, then they laugh at you, then they fight you, then you win."
-Mahatma Gandhi

Looks like we win.

 

[geneclean55]

So they didnt do enough due diligence and just threw it out in a hurry then? Very interesting.

Looks like Musk's last minute rejection enraged them.

 

[KarenRei]

why did Musk not settle? this seems so dumb

How can you possibly state that without knowing the terms? The "settlement" may very well have included a ban from serving as CEO.

 

[Dangleitus]

It will lose its strength pretty quickly, like all the other FUD. Not that they won't keep pushing it, but fairly quickly people will stop caring.

This isn't some sort of uncertainty - the SEC suit is unambiguous vis:

"This case involves a series of false and misleading statements made by Elon Musk, the Chief Executive Officer of Tesla, Inc. (“Tesla”), on August 7, 2018, regarding taking Tesla, a publicly traded company, private."

 

[oneday]

Great info. Thank you. What would be the basis for a criminal complaint against Elon from the DOJ? That would involve a much higher level of proof no doubt. There does not appear to have been any financial benefit to Elon from this. What angle would they be taking?

An angle that would require a lot of spin. There is an abundance of spin doctors out there though.

 

[Singuy]

Elon doesn't seem to be the type that settles when he doesn't believe he was in the wrong. Who knew what the settlement was, but this entire pedo thing has taught us is that Elon doesn't give up on what he believes in.

 

[generalenthu]

How can you possibly state that without knowing the terms? The "settlement" may very well have included a ban from serving as CEO.

Any detail in that wsj article?

 

[bdy0627]

It will lose its strength pretty quickly, like all the other FUD. Not that they won't keep pushing it, but fairly quickly people will stop caring.

I agree with this. Tesla will be in the penalty box for a while, but nothing that several good financial quarters can't ultimately defeat.

 

[MTL_HABS1909]

How can you possibly state that without knowing the terms? The "settlement" may very well have included a ban from serving as CEO.

It’s actually very likely that this was the offered settlement.

 

[tivoboy]

why did Musk not settle? this seems so dumb

Because it probsbly required his removal.

 

[JRP3]

The willingness to quickly settle also negates all the conspiracy theories (fossil fuel interests etc).

Rather depends on the terms doesn't it?

 

[Singuy]

How can you possibly state that without knowing the terms? The "settlement" may very well have included a ban from serving as CEO.

I don't think so, if a ban as serving the CEO is part of the settlement, then there's no question that Elon will fight this. They made it seem like Elon has agreed to settle but retracted last minute, meaning a lawyer is telling him they can reach even a better outcome if they fight.